The Colombian Fintech sector has grown by 26%, with 200 startups currently active, based on data gathered since the most recent Fintech Radar published by Finnovista. This increase was driven by dynamism within the Lending segment and the enormous opportunity created by the scarce access to credit for consumers, SMEs and the underbanked population within the country.
The information analyzed by Finnovista in this fifth edition of the Colombian Fintech Radar is part of a larger research effort for the third edition of the Latin American Fintech Report 2020 in collaboration with the Inter-American Development Bank (IDB), scheduled to be published this year.
Colombia has proven itself as a resilient player in Fintech, in times of both general sector growth as well as global macroeconomic uncertainties. This Andean country continues to have strong Fintech market traction within the region and, with a total of 200 startups, has consolidated itself as one of the main Fintech markets in Latin America for another consecutive year, with only Mexico and Brazil ahead of them.
Currently, as the global socioeconomic climate is experiencing great changes in social, financial and geopolitical behaviours, we see opportunities for Fintechs and entrepreneurs to innovate. In fact, digital solutions could be favored over more traditional offline business models to make the end user’s financial life more simple. This also aligns with the physical distancing recommended by authorities.
The research conducted by Finnovista regarding the Colombian ecosystem leads to several important conclusions about Fintechs within the country. For instance, when analyzing the solutions that Colombian startups offer, there is a clear interest in promoting financial inclusion as well as products and services that improve overall financial wellbeing for the end users. A key example of this is a2censo, an initiative launched by the Colombia Securities Exchange (Spanish: Bolsa de Valores de Colombia, BVC) which we will elaborate on more in this article. Another important finding was that over 60% of Fintech startups received external funding, based on self-reported data. Another important insight that the Colombian Finnovista Fintech Radar shows is that the number of employment opportunities generated by the sector has increased in comparison to previous years, having already reached over 7,000 jobs by the beginning of 2020.
The annual growth rate of 29% exhibited in the last edition of the Finnovista’s Colombia Fintech Radar, published in March 2019, aligns with the current annual growth rate of 26% which the ecosystem experienced over the last year. This indicates the real need for the financial products and services offered by Fintechs, as well as a glimpse at the potential for this sector as well as future opportunities. Accordingly, Finnovista has identified 50 new startups in the ecosystem in this latest edition of Fintech Radar. This shows how Colombia has maintained its impressive growth, and that it has achieved a higher growth rate when compared over the same annualized period as Mexico, based on Mexico’s most recent Fintech Radar. Also, it’s important to take into consideration the startups that became inactive over this period to truly appreciate the overall growth. Only 28 Colombian Fintechs ceased their operations, the equivalent of a 14% mortality rate.
Correspondingly, when analyzing the segments within the Colombian Fintech sector, we see that the main four segments are Lending, with 48 startups representing nearly 25% of the sector, followed by Payments & Remittances, with 43 fintechs resulting in 21% of the market, while ETFI, has grown to 27 startups representing 13%, and, also importantly, EFM, with 25 startups totalling a 12% of the ecosystem.
The segments that have experienced the most growth are ETFI, exhibiting 80% growth, starting from 15 startups the previous year, and currently with a total of 27 Fintechs. The segment that had the next highest growth is Scoring, Identity & Fraud with 14 startups, identifying 4 more than the previous Fintech Radar, experiencing a 40% increase. The third highest growth was shown by the Lending segment, including both consumer and business lending, that grew from 36 to 48 new initiatives, resulting in a growth rate of 33%.
It’s worth noting, that Lending has grown significantly over the past year, leading to its top placement within the Colombian fintech ecosystem. In terms of number of startups, Lending has surpassed Payments & Remittances which had held this title in the past, and now is the second largest segment.
This may not come as a surprise to many, since there has always been a need for both consumer and business loans that was not completely met by financial institutions in the region. Specifically, throughout our research, we have witnessed growth in the specialization of lending to small and medium enterprises (SMEs), a need that beforehand was underserved, and that now could drive growth in this market segment, particularly with the uncertain economy as a result of the latest current events. To support such findings, we also see initiatives launched by organizations such as the Colombian Ministry of Commerce, Industry and Tourism and iNNpulsa.
Based on a sample size of 89 Fintechs, representing about 45% of the Colombian Fintech ecosystem, we have identified that nearly 90% of all startups within Colombia are launched from Bogotá (67%) and Medellín (20%), centralizing growth and innovation in these two main cities.
According to the 2020 Colombian Fintech Radar, 70% of Colombian startups do not have international operations. Meanwhile, the remaining 30% of fintechs that have expanded to other countries have mainly done so in Chile, Peru and the United States.
As mentioned earlier, we’d like to highlight another important finding from Finnovista’s most recent edition of the Fintech Radar; 61% of Colombian fintechs have received external funding. This is a key indicator as to how investors show confidence in the sector, and that has maintained strength over the years. Compared to last year, where 58% of startups indicated that they received external funding, we see a growth of three percentage points in 2020.
Additionally, when Finnovista was collecting data in collaboration with BID, about 80% of Fintech in Colombia reported that they are currently fundraising, with 51% of those raising funds, offering equity. A recent example of this is ADDI, a point-of-sale lending Fintech, which received a US$12.5 million investment from Andreessen Horowitz, monashees, Village Global and Sinai VC.
Furthermore, in relation to employment, the Finnovista Fintech Radar highlights the key role that Fintechs play in creating jobs. The Colombian Fintech sector accounts for the creation of over 7,000 jobs, with the average Fintech employing on average 34 people. This statistic is similar to that of Mexico, which has an average of 32 employees per Fintech. Also, the Colombian Fintech ecosystem would be categorized as mature, based on the fact that 71% of startups are either in the Growth & Expansion or Ready to Scale phase.
Another key finding in the 2020 edition of the Colombian Fintech Radar, is that 45% of the startups involved in the survey responded that they cater to clients who are underbanked, unbanked or considered at the bottom of the pyramid. Interestingly, 32% of those who responded to the survey and targeting the previously mentioned groups, indicated that they had a B2C business model, while only 13% indicated that they focus on products and services for businesses, concluding that the majority of Fintechs are currently positioned to provide products and services for the consumer or individual, rather than small businesses.
Again, this ties into the large opportunity that we see for Fintech initiatives that can develop solutions targeted towards underbanked small or medium businesses (MSMEs), or those that do not have access to traditional financial services. This point is particularly impactful when taken into consideration that MSMEs represent over 90% of establishments currently operating in Colombia, and that over half of MSMEs do not have access to external funding or credit.
In light of this necessity for improved financing channels, a2censo, a notable initiative by BVC, was launched toward the end of 2019. A2censo is a crowdfunding platform, and although it is not technically a startup, it’s worth mentioning this addition to the Colombian Fintech ecosystem for the relevance it holds within the sector. This is a great example of an incumbent financial institution trying to improve access to capital for SMEs in Colombia.
To conclude, Colombia has shown resilience over the years, and in fact holds promising opportunities for the future, especially during this time of national uncertainty. With more importance held in digital payments and accessibility to alternative forms of financing, Finnovista sees that there is still room for growth for Colombia’s two main fintech segments, Lending and Payments & Remittances.
Also, with the development of more targeted products and services toward underbanked and unbanked clients, particularly MSMEs, those who normally do not have access to finance, would have the potential to grow as well, aiding the development of the country as a whole.
Do you know any other Fintech startup from Colombia that has not been included in our Fintech Radar? If so, please contact us at [email protected].